Market bears resurface at major S&P 500 resistance

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Technically speaking, the S&P 500 has balked at its second test of significant resistance — at least initially.

The specific area matches its breakdown range top — S&P 1,950 — a level that remains an important bull-bear battleground. Against this backdrop, the S&P 500’s longer-term technical bias remains bearish.

Before detailing the U.S. markets’ wider view, the S&P 500’s
SPX, -1.03%
hourly chart highlights the past two weeks.

The Dow closed Monday at 16,620 — just under the 50-day — and its response to resistance, over the next several sessions, should be a useful bull-bear gauge. A sustained breakout would place the Dow in less-charted territory, opening the path to potentially material follow-through.

To reiterate, the S&P’s range top rests at 1,950, closely matching its 50-day moving average, currently 1,949.5. The index hasn’t closed atop its 50-day moving average since Dec. 29.

The bigger picture

Broadly speaking, significant technical tests are underway this week. This applies to the major U.S. benchmarks, and influential sectors, detailed in the next section.

Against this backdrop, the U.S. markets' longer-term technical bias remains bearish pending repairs.

Moving to the small-caps, the iShares Russell 2000 ETF has rallied unimpressively from its lowest levels since May 2013.

Consider that recent downdrafts have been fueled by decreased volume, while the latest rally has been driven by decreased volume. This is bearish price action, though a break from its range top, fractionally above 103, would mark technical progress.

Meanwhile, the SPDR S&P MidCap 400’s backdrop is slightly stronger.

As illustrated, it’s reached resistance matching the 50-day moving average, outpacing the small-caps. The MDY’s 50-day has marked a useful trending indicator over the past year, and its response is worth tracking.

Still, major overhead rests at the 244.50 breakdown point, with a posture lower supporting a bearish bias.

Looking elsewhere, the SPDR Trust S&P 500
SPY, -0.94%
has reached a more important technical test.

Consider that its range top rests at 194.86, detailed Friday, and the SPY closed Monday just eight cents lower. This area closely matches the 50-day moving average, currently 194.88.

More plainly, the 195 area marks an inflection point, corresponding with S&P 500 resistance at the 1,950 mark.

Against this backdrop, the S&P 500’s technical test is unusually straightforward, and not inconsequential.

To reiterate, the S&P’s range top rests at 1,950, closely matching its 50-day moving average, currently 1,949.5.

As always, it’s the response to resistance that’s worth tracking.

An eventual breakout would mark a higher high, placing the brakes on bearish momentum. Additional overhead rests at 1,993, matching the December low, and the September mini-crash range top.

Conversely, a failed retest would preserve the S&P 500’s bearish intermediate-term bias, leaving it vulnerable to a potential retest of the lows.

Beyond technical tests, the 2016 downdraft has inflicted broadly-based damage, and the S&P 500’s longer-term backdrop supports a bearish view. The next several sessions, and the February close, should add color to the immediate outlook.

Tuesday’s Watch List

The charts below detail names that are technically well positioned. These are radar screen names — sectors or stocks poised to move in the near term. For the original comments on the stocks below, see The Technical Indicator Library.

Consider that its breakdown point closely matches trendline resistance and the 50-day moving average.

Separately, it’s rising from a double bottom — the W formation — defined by the January and February lows.

Recent strength has been fueled by decreased volume, reducing the chances of follow-through, though the group’s response to resistance is worth tracking. A breakout would raise the flag to an intermediate-term trend shift.

The group’s response to resistance is worth tracking, though its longer-term bias remains bearish pending a close higher, as detailed Feb. 5. Here again, the rally has been fueled by progressively decreased volume, reducing the chances of a breakout.

Rate-sensitive sectors continue to outperform

As illustrated, it’s recently maintained the 200-day moving average, rising to hug major resistance. The group’s range top matches its all-time high (51.37), an area that’s under siege this week.

On further strength, an intermediate-term target rests just under 53.50, projecting from the February range. Separately, the group is rising from a modified double bottom, a pattern that would be resolved with a breakout.

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